Profit margin growth continues

Wise Vision Education announced that its revenue for fiscal year 20 (as of the end of August) was 1.79 billion yuan, an increase of 6.6% over the same period last year. This was due to a 12.8% increase in income from tuition and accommodation fees, and an adjusted net profit of 599 million yuan, an increase of 30.5% over the same period last year. 1.3% higher than we expected, mainly due to higher profit margins.

We expect enrollment in FY21 to increase by 11.6% year on year, and the average tuition fee for new students will increase by 6% 38% year on year.

To reiterate the "overweight" rating, the new discounted cash flow is priced at HK $4.50.

Profit margins continue to grow thanks to cost control

Wise Vision Education reported revenue of 1.79 billion yuan in fiscal year 20 (for the year ended August), an increase of 6.6% over the same period last year, driven by a 12.8% increase in tuition and accommodation fees. In fiscal year 20, the number of students increased by 10.5% compared with the same period last year, of which the number of endogenous students increased by 9.2%, and another 972 freshmen came from four new schools. During the period, the gross profit margin increased by 4.3 percentage points year-on-year to 48.4%, which was due to a higher contribution to income from tuition and boarding fees, which benefited from higher profits, as supporting services were affected during the epidemic. Due to better-than-expected cost control, wise vision education had an operating profit margin of 39.6% in fiscal year 20, an increase of 10.1% over the same period last year, continuing the trend of the first half of fiscal year 20. The adjusted net profit of wise vision education during the period was 599 million yuan, an increase of 30.5% over the same period last year and 1.3% higher than our expectations.

Strong growth in the number of students and tuition fees

At the end of fiscal year 20, there were 12 schools and 3 new schools under construction. At present, the company can accommodate a total of 70000 students, and the school under preparation can add an additional 26500. In fiscal year 20, the number of students in the company increased by 10.5% to 60116 compared with the same period last year. Management expects the number of students to grow by 11.6% year-on-year at the end of fiscal 21, and the number of students from providing management services to other third-party schools will increase by 4236. In the new semester of fiscal year 21 (which ends at the end of August), Vision Education will increase the average tuition fee for freshmen by 638%. Management expects revenue to grow by more than 20% in the first half of FY21 (through the end of March) compared with the same period a year earlier.

On the Citizen recruitment Policy of civilian-run K12 School

According to this policy, if the number of students applying to a private school exceeds the number of students the school can accommodate, the enrollment of students will be randomly allocated based on computers. The main purpose of the policy is to avoid abnormal competition between public and private schools in recruiting elite students.

Insight Education provides its students with direct opportunities to go to school from primary school to junior high school, and the helicopter system is not restricted by policy. The number of students from the same citizen enrollment policy accounts for only 70% of the insight capacity, leaving room for wise vision to recruit other quality students. Management expects the policy to help schools reduce enrollment costs in the future.

Enter the market of private higher education

Dongguan Guangzheng Institute of Science and Technology, which is owned by wise vision education, is jointly established with Harbin Institute of Technology and big data Group of Harbin University of Technology. Wise Vision Education will own most of the shares, and big data Group of Harbin University of Technology will be responsible for teaching, designing curriculum, syllabus and teaching plan.

The school is expected to accommodate 10,000 students and will begin operation one year after the land and school qualifications are ready. Another higher education school is the Bazhong Guangzheng Institute of Science and Technology in Sichuan Province, which can accommodate 6000 students and is expected to start operation in September 2022.

To reiterate the "overweight" rating, the new discounted cash flow is priced at HK $4.50. We have raised our core net profit forecasts for the fiscal year 21-22 (for the year ended August) by 2.6% and 3.3%, respectively, to reflect higher-than-expected profit margins. And extend our forecast to fiscal year 23 (as of the end of August). The reasons why we are optimistic about insight education are: 1). Strong growth in the number of students; 2). The potential to double the capacity of the school; 3). The light asset model can be used for future expansion. The risk is: 1). COVID-19 epidemic spread for a longer time, and 2). Any negative policies from the government.